Tag: average income

Poverty’s Decline and Its Causes

It is always refreshing to see journalists draw attention to the incredible decline in world poverty. An article that did just that appeared yesterday in the Christian Science Monitor. The piece shines a spotlight on three heartening facts in particular. 

First, poverty is decreasing. Not only have poverty rates fallen, but the total number of people in poverty has decreased. This is incredible when one considers population growth—there are more people alive today who aren’t in poverty than ever before. The Brookings Institution projects poverty will be practically eliminated by 2030. 

Second, average incomes are rising. World per capita GDP, adjusted for inflation and differences in the cost of living, has never been higher. And average income growth is not limited to developing countries: the average American has more disposable income left after basic expenses

Finally, humanity is healthier. Globally, average life expectancy is at an all-time high, largely due to plummeting infant mortality rates. More people have enough to eat and enjoy access to clean drinking water and improved sanitation facilities. The developed world has also seen health gains, with cancer death rates falling for both men and women in the OECD countries. 

The article attributes improvements in well-being to three main factors: the fall of communism, the rise of trade and globalization, and the courage of those who stood up against tyranny. 

While the CSM article gives some credit to international aid programs, it is important to recognize that aid is not a good driver of economic development. Even vocal aid-proponent Bono acknowledges that international aid and charity pale in comparison to the prosperity-creating power of people engaging in market exchange. 

When given the freedom to do so, it is truly remarkable what ordinary people can achieve. Consider the utter transformation of Singapore from poverty to riches – that is the power of economic freedom!

What the Washington Post Gets Wrong about Free Markets

This morning, the Washington Post ran an op-ed titled, “How free markets make us fatter, poorer and less happy.” Actually, the data suggest the exact opposite: free markets make us healthier, richer and happier. 

Free markets make us healthier 

First, the authors argue that free markets result in an abundance of temptations, such as candy and fattening food, and that encourages obesity. Obesity is a problem, but let’s put matters in proper perspective. The best proximate measure of the health of a nation is life expectancy. That is increasing. In fact, Americans have never lived longer. 

Moreover, a ban on fatty foods raises questions about personal freedom and responsibility. We allow people to buy alcohol, but discourage them from drinking and driving. Why not allow for sale of fatty foodstuffs, while discouraging gluttony through, for example, increased medical insurance premiums?   

The free market has been amazingly successful in increasing food production across the globe. In 1962, people in 51 countries consumed fewer than 2,000 calories per person per day. By 2011 that number fell to one (Zambia). All the while, life expectancy around the world has increased. 

Free markets make us richer

President Obama’s Dubious Claims about Incomes of the Top 1% vs. the Bottom 90%

“In the last decade, the average income of the bottom 90 percent of all working Americans actually declined,” Obama said on April 13. “The top 1 percent saw their income rise by an average of more than a quarter of a million dollars each.”

Politi-Fact, partly on the basis of my own research, generously rates the president’s claim as “Half True.”

The truth is that the President’s source, Thomas Piketty and Emmanuel Saez, refer only to pretax, pretransfer income reported on individual tax returns (as opposed to being sheltered inside a corporation or IRA or simply unreported), and they have no data on the bottom 90%. Worst of all, they leave out transfer payments, which amounted to $2.3 trillion last year — 44% as large as all private wages and salaries ($5.2 trillion). The data also excludes refundable tax credits, which added about $170 billion to low and middle incomes in 2009 according to the the Joint Committee on Taxation (the EITC, child credit and Obama’s “making work pay” credit). And the Bureau of Economic Analysis estimates that gross income reported on tax returns is about $1 trillion less than actual income.

As for the top 1%, my research shows that top investors report more capital gains and dividends when those tax rates go down, which is why they paid such a big share of income taxes (up to 40%) in 1997-2000 and 2003-2007.  Raise the tax on dividends and capital gains to 23.8%, as Obama hopes to do by 2014, and somebody else would have to pay the taxes now paid by the top 1%. Using income reported to the IRS to measure actual living standards is foolhardy at best.